Posted on 11/20/2015 10:22:11 AM PST by thackney
A year after Saudi Arabia and its oil cartel decided to keep their oil wells running and let plunging prices correct a global oversupply, the number of bankruptcy cases among North American oil drillers has risen to 37.
And that figure could double next year if crude stays cheap, as at least as many oil companies appear to be on the precipice of running out of cash or are coming up on deadlines to pay off their debt, attorneys at Dallas-based Haynes & Boone said Friday.
The casualty count could end up growing larger than in the 2009 financial crisis, when the oil market crashed for a relatively short period and 60 U.S. and Canadian drillers went bankrupt.
"It's harder to withstand low prices for a long time," said Buddy Clark, head of the energy practice group at Haynes & Boone, the law firm that tallied up this year's bankruptcies.
Sixteen of the bankrupt companies were based in Texas. Most of them were small, and didn't play a central role in the nation's energy surge over the last few years. But together they had $13 billion in debt.
Federal regulators said earlier this month the amount of oil-company bank debt that's considered substandard, doubtful or a loss has climbed five-fold over last year to $34.2 billion. They blamed an aggressive industry run-up in debt from 2010 to 2014 as companies bought property and drilled expensive horizontal wells to capitalize on a new resource, shale oil, which previously had been inaccessible.
It's "making many borrowers more susceptible to a protracted decline in commodity prices," the Office of Comptroller of the Currency said.
Oil prices have collapsed since the Organization of the Petroleum Exporting Countries met in Vienna last Thanksgiving and decided to keep their crude production levels steady despite a global oil glut. Saudi Arabia and Iraq have boosted output while U.S. shale plays have lost hundreds of thousands of barrels of production since April. Swift Worldwide Resources estimates 233,000 oil-industry jobs have been swept away by the downturn. U.S. crude, which reached a 2014 peak of more than $107 a barrel, traded for just a few cents over $40 in midday trading Friday on the New York Mercantile Exchange.
Haynes & Boone bankruptcy attorney Charles Beckham said regulators have told bankers they need to review oil companies based on their ability to repay all of their debt, not just the debt they have from the banks, because many drillers took debt from other sources including the riskier side of the debt capital markets. From 2010 to 2015, U.S. oil companies took out about $247 billion in high-yield debt to fuel the shale oil boom.
Regulators "want the banks to look at the borrowers as a whole, and if the ability to repay all of its debt is suspect, then you need to higher-risk your facility," Beckham said.
Oil BAD..Green GOOD..so I guess the tree huggers should be HAPPY now!!!
So the message here is that Americans have to endure high prices at the pump to allow these folks to pay off their debt. Nonsense, they made business decisions that proved to be inaccurate. No more bailouts for anyone. Oil companies are not “too big to fail.”
Where do you read that? Not in this article.
I read too much debt with too much risk can result in companies with better financial management may buy the assets at reduced cost during the bankruptcy.
No bailouts. No federal subsidy.
There were plenty who criticized the oil majors for not spending billions jumping in the shale boom as fast as they could. Now some of those are buying in at a fraction of the cost. The message is investors need to be aware of the risks. The message is not that government (taxpayers) should take that risk away.
The companies will go bankrupt. The human beings who know how to drill for oil will still be around.
“Where do you read that? Not in this article.”
That was my personal observation! I was just pointing out that the government needs to not be involved here. These businesses need to stand or fall on their own.
Many entrepreneurial types don’t stress too much about a business failure. They just pick themselves up and start something else. Many of the workers in these types of businesses aren’t hopeless either, their skill set will apply elsewhere.
Earlier this year, my wife’s aunt was complaining about the drop in oil prices and how destructive it is to American jobs. She works as a cook on a rig in Alaska. Later, I had to explain to my wife that her aunt’s skillset as a cook is not exclusive to oil rigs and that she can find work as a cook in my types of organizations.
>> Oil BAD..Green GOOD..so I guess the tree huggers should be HAPPY now!!!
Nah, because oil CHEAP, green EXPEN$IVE.
The story is really about the bankers, not the small time drillers. The drillers won’t be missed, and will back in the game on the next up cycle. And the TBTF banks aren’t at risk. Some of the regionals and smaller banks do have high exposure. But they won’t be helped out unless they are politically connected. Might be a good time to go shopping for banks if someone has a lot of capital to tide them over.
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